Unions and the Wage-Productivity Gap

Although both real wages and productivity have been growing at relatively slow rates during the last two decades, some measures indicate that earnings have failed to keep up with productivity growth. The slowdown in real wage growth is important to workers and their families because their purchasing power is not rising if earnings are not increasing faster than prices. The failure of growth in real wages to match productivity gains also has critical implications for workers.

A substantial decline in the unionization rate since the 1960s has been cited as underlying the wage-productivity gap. This article explores the trends in productivity, pay, and the unionization rate, analyzing data over the 1974-94 period. The author concludes that the decline in the unionization rate does not explain a significant portion of the rise in the wage-productivity gap in the manufacturing sector. A resurgence of unions might help workers reap more benefits from productivity gains, but it appears unlikely that an increase in the unionization rate alone would cause compensation increases to fully match productivity gains.